Once-Mighty Detroit Becomes Biggest US Municipal Bankruptcy

The city of Motown and American car legends filed for bankruptcy protection in federal court on Thursday as Michigan’s Republican Governor insisted it was the only tonic for “60 years of decline.”

Detroit is about $18 billion in debt.

Michigan Gov. Rick Snyder, who angered unions by signing a Right to Work law late last year, said he authorized the bankruptcy after receiving a recommendation to do so from Kevyn Orr, the city’s emergency manager earlier this week and meeting with him on Wednesday.

“This was a difficult decision but it’s clearly the right decision in my view because there were no other viable alternatives,” Snyder told reporters after Thursday’s filing. “If you look at Detroit and you consider the situation, we have a great city, but a city that’s been going downhill for the last 60 years.”

The Motor City is the largest U.S. city to file for bankruptcy protection under Chapter 9, surpassing Stockton, Calif., which filed in 2012.

And The Detroit News described the 16-page filing as a culmination of a “decades-long slide that transformed the nation's iconic industrial town into a model of urban decline crippled by population loss, a dwindling tax base and financial problems.”

Snyder said that the city had been paying 38 cents of every dollar spent to cover what he described as “legacy costs,” and that figure was expected to increase to 65 cents by 2017.

“It will be good hard work over the next year or so,” Snyder said. “Enough is enough of the downward spiral of Detroit.”

The governor added: “Without this action Detroit would only continue to go downhill.”

Perhaps even worse than the debt facing the city, he said, is the city’s dismal track record in providing basic services.

For example, it takes police an average of 58 minutes to respond to a call in Detroit while it takes an average of only 11 minutes in the rest of the country.

Similarly, some 40 percent of the city’s street lights are not working and the police clear fewer than 9 percent of the crimes reported in the city as opposed to more than 30 percent in Michigan as a whole.

“Basically instead of having promises that can’t be kept, creditors can know what’s a reasonable amount and an amount they will be paid,” the governor explained. “So let’s get on with this process and I really view it as an opportunity for a fresh start.”

General Motors, which filed and emerged from a Chapter 11 bankruptcy, does not anticipate any impact to its daily operations, the automaker said Thursday in a statement.

"GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come," the statement said. "We believe, however, that today also can mark a clean start for the city."

Before Detroit, the largest municipal bankruptcy filing had involved Jefferson County, Ala., which was more than $4 billion in debt when it filed in 2011. Another recent city to have filed for bankruptcy was San Bernardino, Calif., which took that route in August 2012 after learning it had a $46 million deficit.

Detroit has more than double the population of the Northern California community of Stockton, which had been the largest U.S. city ever to file for bankruptcy when it did so in June 2012.

New York was close to bankruptcy in 1975, according to the New York Times, which reported that the city’s lawyers were in State Supreme Court filing the petition, and that police cars had already been mobilized to serve papers on banks.

Detroit lost a quarter-million residents between 2000 and 2010 — a population that in the 1950s reached 1.8 million — and now struggles to stay above 700,000.

Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them.

Beginning in the late 1960s, auto companies began opening plants in other cities. Property values and tax revenue fell, and police couldn't control crime. Then the rise of autos imported from Japan started to cut the size of the U.S. auto industry.

In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.

Snyder stressed that Detroit residents will not notice anything different in the short term.

“Many people may say this is the low point in Detroit’s history, but without this action Detroit would only continue to go downhill,” he asserted. “This is our opportunity to continue the comeback of Michigan and make sure Detroit’s on the path to coming back also.”